A Real Options Model of Stepwise Entry Into Self-Employment

13 Pages Posted: 16 Dec 2008 Last revised: 10 Mar 2009

See all articles by Karl Wennberg

Karl Wennberg

Linkoping University - Institute for Analytical Sociology (IAS)

Timothy B. Folta

Purdue University - Krannert School of Management

Frédéric Delmar

Lund University School of Economics and Management; EM Lyon (Ecole de Management de Lyon); Research Institute of Industrial Economics (IFN)

Date Written: December 3, 2008

Abstract

This paper tests a real options model of stepwise entrepreneurial entry. We distinguish between part time and full time entry among the self employed in Swedish knowledge intensive industries. Two multinomial logit models tests the entry from employment to part or full time entry in 1998, and to subsequent full time entry in 1999. The empirical evidence indicates the need to distinguish between part time and full time entry, something overlooked in earlier research. We find strong support for our notion that entrepreneurs used part time entry as a strategy to test the value of their conceived business opportunity without risking their full income. However, our hypothesis that entrepreneurs use a real options heuristic shaped by the uncertainty and the irreversibility of entry received only mixed support.

Keywords: Entrepreneurship

JEL Classification: M13

Suggested Citation

Wennberg, Karl and Folta, Timothy B. and Delmar, Frédéric, A Real Options Model of Stepwise Entry Into Self-Employment (December 3, 2008). Babson College Entrepreneurship Research Conference (BCERC) 2006 Paper; Frontiers of Entrepreneurship Research 2006. Available at SSRN: https://ssrn.com/abstract=1310937 or http://dx.doi.org/10.2139/ssrn.1310937

Karl Wennberg (Contact Author)

Linkoping University - Institute for Analytical Sociology (IAS) ( email )

Norrköping, 601 74
Sweden

Timothy B. Folta

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States
765-494-9252 (Phone)

Frédéric Delmar

Lund University School of Economics and Management ( email )

P.O Box 7080
Lund
Sweden

EM Lyon (Ecole de Management de Lyon) ( email )

23 Avenue Guy de Collongue
Lyon, Ecully 69134
France
+33 (0)4 78 33 70 18 (Phone)

HOME PAGE: http://www.em-lyon.com/france/professeurs/delmar/index.aspx

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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